Submission to the Supreme Court on olanzapine patent

Written submission on olanzapine patent was filed to the Korean Supreme Court, which was officially accepted by the Court on October 31, 2019. PDF documents of the submission are available at here and here (all in Korean).

The submission was endorsed by five CSOs (Knowledge Commune, Commons Foundation, Center for Health and Social Change, Association of Physicians for Humanism, and Korean Pharmacists for Democratic Society) and two experts (Dr. Ruth Ropert and Prof. Brook Baker). Here is the summary of the written submission.

1. Backgrounds

The olanzapine patent (KR 195,566 A1) has provoked a number of disputes across the world. In many jurisdictions including the U.S.,[1] U.K.,[2] Netherlands,[3]Germany, [4] Spain, [5] Norway, [6] Finland, [7] Australia, [8] Canada and China, patentability and infringement of the subject patent have been contested.

In Germany, the Federal Patent Court (BPatG) ruled that the olanzapine patent was invalid as lacking a novelty as a selection invention.[9] When several generics entered the market after the BPatG’s invalidation decision, Eli Lilly, a patent holder, successfully sought a preliminary injunction against generic companies. [10] The Canadian Supreme Court found the olanzapine patent invalid by applying the utility promise doctrine, [11] and against this decision, Eli Lilly launched an Investor-State Dispute Settlement arbitration under the North American Free Trade Agreement. [12] In China, lower court decisions ordering several millions CYN were quashed in 2016 by the Chinese Supreme Court.
[13]

With the huge number of disputes over the olanzapine patent around the world, there are no precedents, as far as we know, that generic producers were held reliable for damages for patent infringement. Damages for olanzapine patent infringement were mentioned in litigations in Düsseldorf, Germany, but the court did not determine the amount of damages.[14] In particular, there is no case laws finding the generic companies liable for harms caused by governmental drug pricing measures, not by market competition of the generic products.

Unlike the Seoul High Court ruling, [15] the decision of the Korean Patent Court [16] misunderstood the objectives and purposes of patent system and reached a wrong conclusion by which a patent holder is over-protected, leading to an unreasonable delay of generic products and an encroachment of right to health that is protected by the constitution and international human rights instruments.

2. Limitation of Remedies in Consideration of Public Interests

When the Patent Court made a decision on the liability of generic producers for a price reduction by governmental measures, the judges posited that there could be no public policies allowing generic entry during the lifespan of a patent. Therefore, the Court ruled that “the interests of a patent holder created on the basis of the validity of a registered patent should be more protected than those of the person acting on the premise that the patent is invalid”, and “the public interest that contributes to the financial soundness of the National Health Insurance System by lowering the price of original drugs through the early entry of generic drugs should not exceed the public interest achieved through the protection of patent rights.” [17].

However, the balance striking of the Patent Court is completely wrong. Balance striking should be made between private interest of a patent holder obtained by patent protection and the public interest achieved by limiting a patent right. This is inherent even in TRIPS Agreement, which has been criticized as leveling up the level of patent protection globally. The ruling of the Patent Court also brings about a conflict with the national obligation under the Doha Declaration on the TRIPS Agreement and Public Health [18] According to the Doha Declaration, WTO member states agreed that “TRIPS Agreement does not and should not prevent Members from taking measures to protect public health.” Under this agreement, the WTO Members affirmed that TRIPS “can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all.” Given that TRIPS is the first international pact globalize a pharmaceutical product patent, the Doha Declaration has a close relationship with this case. The obligation that Korea has to abide by the Doha Declaration is provided in several bilateral agreements such as Art. 18.11 of KORUS, Art. 10.34 of the Korea-EU FTA and Art. 16.5 of the Korea-Canada FTA.

If a generic producer is liable for a price reduction made under NHIS, the generic producer has to bear an excessively large amount of damages compensation. This may discourage generic producers from entering the market after all of the patent matters are completely cleared by the highest court. At the same time, this may encourage a patentee to delay court proceedings in a patent dispute. None of them is in line with public policy objectives expressed in TRIPS and Doha Declaration.

The scope of remedies available for a patent holder can also be limited by applying the principle of damage compensation under the civil law doctrine: the fair and equitable distribution of loss. Damage liability aims at correcting wrongdoings between interested parties, not shifting misfortune to others. Therefore, the Patent Court’s decision that passed on misfortune that a patent holder suffers from drug pricing policy to generic companies violates the established principle of civil law. In addition, the Patent Court calculated the amount of damages on the basis of sales reduction not by lost profit by the governmental measures of drug pricing, shifting something more than the misfortune faced by Lilly Korea to the generic companies.

3. Over-Compensation

The Patent Court awarded an overcompensation to Eli Lilly and Lilly Korea. Eli Lilly and Company (a UK company), a patentee of the subject patent (KR 195,566 A1), was already granted compensation for loss resulting from the patent infringement by two generic companies (Hanmi and Myung-In). When seeking such a compensation, Eli Lilly relied upon a special provision of the Patent Act, Article 128(7) under which the court may calculate a reasonable compensation on its own discretion. For the discretionary compensation, Eli Lilly sought a recovery of infringer’s profits that are estimated by total sales of the infringing product multiplied by the standard income rate of pharmaceutical industries, 14.2%. This method of estimation was accepted by the first instance courts, ordering compensation of KRW 87,890,860 by Myung-in (2014GaHap526972, 19 June 2015) and KRW 11,6440,000 by Hanmi (2014GaHap556560, 15 September 2017). None of the parties, the patentee, Lilly Korea, Hanmi and Myung-In, appealed to the decisions and the award was finalized.

Then, Lilly Korea sought additional compensation on the basis of the reduction of upper price limit of Zyprexa made by a governmental agency under the National Health Insurance System (NHIS). Regardless of Lilly Korea’s entitlement, this additional compensation is, if awarded, an overcompensation that exceeds actual damages caused by patent infringement. Both Article 127(6) of the Patent Act for the discretionary compensation and Article 127(4) for infringer’s profits are special rules to mitigate the burden of proof required for a patentee when seeking a civil remedies and to ease assessing patentee’s loss inflicted by a patent infringer. In particular, Article 127(4) provides that the infringer’s profits are presumed to be a loss suffered by a patentee from a patent infringement. [19] Therefore, when a patentee is awarded a monetary compensation by enjoying the benefits from the special rule of the Patent Act, no additional compensation may be allowed.


4. Entitlement of Lilly Korea

Lilly Korea maintained that it is entitled to a so-called “exclusive non-exclusive licensee”, meaning that Lilly Korea is a non-exclusive licensee because it cannot prohibit others from using the olanzapine invention, but holds an exclusive nature in a sense that the patentee has an obligation not to grant others a license, exclusive or non-exclusive.

In an appeal proceeding of Lilly Korea v. Hanmi, the Seoul High Court rejected the Lilly Korea’s argument. [20] But in an appeal proceeding of Lilly Korea v. Myung-In, the Patent Court admitted the Lilly Korea’s argument.

Yet, there is no evidence supporting that Lilly Korea is an “exclusive non-exclusive licensee” of the subject patent. The only fact that can be admitted is that Lilly Korea is an exclusive importer and distributor of Eli Lilly’s products including Zyprexa. According to Eli Lilly, there is no written contract granting Lilly Korea a license of the subject patent. Instead, the Master Supply and Distribution Agreement was signed in 1995 by four entities: Lilly Korea, the patentee, Eli Lilly and Company (a US company), and Eli Lilly S.A. (ELSA, an Ireland company). Under this Agreement, the patentee has manufactured and provided for Lilly Korea with Zyprexa through ELSA, and received from the Lilly Korea royalties amounting to 27% of net sales of Zyprexa depending on the volume of its import and sale in South Korea. If Lilly Korea was a patent licensee, the royalty rate of 27% should have been dramatically reduced after the subject patent expired on April 24, 2011. However, none of the appeal courts and their lower courts considered this.

Therefore, Lilly Korea cannot be considered as an “exclusive non-exclusive licensee” of the subject patent and thus has no standing to claim damage compensation against a patent infringer.

  1. Eli Lilly & Co. v. Zenith Goldline Pharm., Inc. (Fed. Cir. 2006), Eli Lilly & Co. v. Accord Healthcare, Inc., No. 1:14-cv-00389-SEB-TAB (S.D. Ind. Mar. 25, 2016), Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 126 F. Supp. 3d 1037 (S.D. Ind. 2015), aff’d, 845 F.3d 1357 (Fed. Cir. 2017).
  2. Dr Reddy’s Laboratories (UK) Ltd v Eli Lilly and Company Ltd., [2008] EWHC 2345 (Pat), [2009] EWCA Civ 1362
  3. ratiopharm v Eli Lilly, The Hague District Court (Rb. te’s-Gravenhage) of 24 March 2010, Mark van Gardingen, Olanzapine, District Court the Hague (Rechtbank Den Haag), 24 March 2010.
  4. Federal Court of Justice of 16 December 2008 (X ZR 89/07) – Olanzapine
  5. Laboratorios Cinfa et al. v Eli Lilly and Company Ltd., Barcelona Court of Appeal (Audiencia Provincial) of 17 January 2008 (appeal no. 368/2007).
  6. Actavis Norway AS v Eli Lilly and Co. Ltd, Oslo District Court (Tingrett) of 2 December 2008.
  7. Eli Lilly v Oy Leiras Finland AB, Helsinki District Court of 19 February 2010 (decision no. 3641).
  8. Apotex Pty Ltd v Les Laboratoires Servier [2013] FCA 1426.
  9. The BPatG’s decision was repealed by the Federal Supreme Court in 2008 (Case NO. X ZR 89/70). Decision of BPatG is here.
  10. Gerhard Barth & Dr. Franz-Josef Zimmer, The Olanzapine patent dispute: German court grants a preliminary injunction on a patent invalidated by the first instance Federal Patent Court, 27 Biotechnology Law Report 532(6), December 2008, DOI: 10.1089/blr.2008.9902 (saying that granting a preliminary injunction based on a patent that BPatG found invalid was the first time in German history); Dr. Thorsten Bausch, The Olanzapine case and its implications for novelty of chemical substance patents in Europe.
  11. Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129.
  12. Eli Lilly and Company v. Canada (ICSID Case No. UNCT/14/2), and Cases Filed Against the Government of Canada under NAFTA Chapter 11, Eli Lilly and Company v. Government of Canada.
  13. China’s supreme court rules against Eli Lilly in patent infringement case, ChinaDaily 16 June 2016.
  14. It appears that the case ended through another litigations or settlement. Relevant case numbers of the Düsseldorf litigations are 4b O 61/09, 4b O 62/09, 4b O 63/09, 4b O 64/09, 4b O 65/09, 4b O 66/09, 4b O 67/09, 4b O 184/08, and I-2 90/9.
  15. 2015Na2040348, 6 October 2016.
  16. 2017Na2332, 8 February 2018.
  17. At page 17 of the decision.
  18. WT/MIN(01)/DEC/W/2, 14 November 2001.
  19. Article 128 (Claim for Compensation for Loss) 
    (1) A patentee or exclusive licensee may claim compensation for a loss inflicted by a person who has intentionally or negligently infringed the patent or exclusive license.  <Newly Inserted by Act No. 14112, Mar. 29, 2016>
    (2) Where a compensation for a loss is claimed pursuant to paragraph (1), but the infringer has assigned the infringing products to third parties, the amount of loss that the patentee or exclusive licensee has sustained may be calculated by multiplying the quantity of products so assigned by the profit per unit of the products that the patentee or the exclusive licensee could have assigned, but for the infringement.  <Amended by Act No. 14112, Mar. 29, 2016>
    (3) The amount of loss referred to in paragraph (2) shall not exceed the amount calculated by multiplying the quantity of products that the patentee or exclusive licensee could have manufactured, less the quantity of products actually assigned, by the profit per unit: Provided, That the quantity of products that the patentee or exclusive licensee could not assign due to any cause or event other than the infringement shall be subtracted therefrom, if such cause or event, in addition to the infringement, prevented the patentee or exclusive licensee from assigning the products.  <Amended by Act No. 14112, Mar. 29, 2016>
    (4) Where a compensation for a loss is claimed pursuant to paragraph (1), the profits that a person who has intentionally or negligently infringed the patent or exclusive license has gained due to the infringement, if any, shall be deemed the loss that the patentee or exclusive licensee has sustained.  <Amended by Act No. 14112, Mar. 29, 2016>
    (5) Where a compensation for a loss is claimed pursuant to paragraph (1), the patentee or exclusive licensee may claim the amount that he/she would usually be entitled to receive for practicing the patented invention as the loss that he/she has sustained.  <Amended by Act No. 14112, Mar. 29, 2016>
    (6) Notwithstanding paragraph (5), the amount of loss exceeding the amount specified in the same paragraph may also be claimed as damages. In such cases, the court may consider the fact that there was no intentional conduct or gross negligence on the part of the person who infringed the patent or exclusive license in determining the damages.  <Amended by Act No. 14112, Mar. 29, 2016>
    (7) If the court finds, in legal proceedings on infringement of a patent or exclusive license, that a loss has been incurred due to the infringement but it is extremely impracticable to verify the facts necessary for evidencing the loss in light of the nature of relevant facts, it may award reasonable damages based on the gist of entire arguments and the results of examination of evidence, notwithstanding paragraphs (2) through (6).  <Amended by Act No. 14112, Mar. 29, 2016>
    [This Article Wholly Amended by Act No. 12753, Jun. 11, 2014
  20. 2015Na2040348, 6 October 2016.

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